momagri, movement for a world agricultural organization, is a think tank chaired by Christian Pèes.It brings together, managers from the agricultural world and important people from external perspectives, such as health, development, strategy and defense. Its objective is to promote regulationof agricultural markets by creating new evaluation tools, such as economic models and indicators,and by drawing up proposals for an agricultural and international food policy.

Counting the Costs of Agricultural Dumping

By using the definition of dumping as having products exported at a price lower than production costs, the American think tank IATP (Institute for Agriculture and Trade Policy) tried to bring to light this phenomenon on the main crops in the United States. Although the method applied here uses necessarily simplifying hypotheses, the results show that the gap between production costs and export prices, during 2015, is of 32% for wheat, 10% for soy, 12% for corn and 2% for rice.

Beyond these outputs, the value of this study by the IATP, whose introduction and conclusion we are publishing below1, is that it offers a much more balanced analysis of the causes of dumping rather than the sometimes stereotypical arguments that can be heard regarding this subject, such as the fact that eliminating subsidies would be enough to make prices return to the market’s equilibrium. Indeed, S. Murphy and K. Hansen-Kuhn focus their analysis on the reasons that drive a farmer to keep producing even though his full production costs are not being covered. From that perspective subsidies are perceived more as consequences of market imperfections rather than the cause of dumping: “the system is structured in a way that allows, even encourages, farmers to operate at a loss, which maximizes profits further downstream” and “can be devastating for farmers in importing countries, especially in low-income countries with little power to defend their markets”.

By criticizing the current WTO rules which are too heavily focused on subsidies and not enough on “the oligopolistic market power of international grain traders and global overproduction”, S. Murphy and K. Hansen-Kuhn are advocating for a new approach to international trade based on the principle that each government is under a duty to ensure food security at home and on the need to resort to supply management tools in order to stabilize prices when markets are down. In the end, both scientists regret the lightness of the United States on the subject of dumping, because in the current state of things “challenging other countries’ agricultural programs (as the U.S. has challenged China at the WTO) is hypocritical and clouds the possibility for a successful outcome to debate at the WTO on necessary reforms”

Momagri Editorial Board

The United States is an international agricultural powerhouse. It is the third largest producer of agricultural commodities globally, after China and India, and the world’s largest agricultural exporter. Its agribusinesses dominate world markets. Yet, in several of the agricultural commodities in which the U.S. is a major supplier to world markets, the prices at the point of export from U.S. ports are less than the cost of producing the crop. According to IATP’s calculations, in 2015, U.S. wheat was exported at 32 percent less than the cost of production, soybeans at 10 percent less, corn at 12 percent less and rice at 2 percent less. This paper documents this phenomenon, termed dumping in the General Agreement on Tariffs and Trade (GATT), and its consequences. Dumping matters for at least three reasons. First, it undermines the economic viability of competing farmers, whether the farmers are growing crops for their domestic markets in importing countries, or selling their crops to traders for export in competition with U.S. production. This is especially a problem for largely agricultural developing countries that rely on agriculture for economic stability. Dumping has generated significant tension in international trade negotiations as a result. Second, dumping is a threat to U.S. producers who sell their product in markets that are controlled by a just a handful of agricultural commodity trading corporations (four corporations control an estimated 75-90 percent of grain traded globally,1 while it’s often the case in many markets within the U.S. that just one or two firms are present). As this paper documents, the prices farmers get for their crops, on average, are often less than their average cost of production. The gap lessened, and even disappeared briefly, while commodity prices were higher after the 2007-2008 food price crisis. But prices are now down again, the lowest they have been since 2002. Net farm income in the U.S. is down by 50 percent since 2013.2 U.S. commodity farmers are reliant on off-farm income as well as government payments (in the form of both production and income support) to stay in business. The economic consequences of a system that reinforces dumping are felt by U.S. commodity growers and their families, their hired workers and by the rural communities they live in—communities that are deprived of capital that should support vibrant economic life. Third, dumping creates an economic environment that undermines the realization of environmental objectives. Care of the natural resource base, including soil health, water quality and the ecological diversity of farmland, are all squeezed, not just because commodity markets externalize environmental costs, but also because sustainable use is priced out by increasingly concentrated competition. The result is a vicious circle of policies that harm family farmers, the environment and local economies in both the U.S. and the countries receiving agribusiness’ exports from the U.S. Dumping is the logical result of U.S. agriculture and trade policies that encourage overproduction, using export markets as an escape valve for falling prices and revenues. Agricultural commodity dumping has not gone unnoticed in trade circles; it has been the subject of ongoing controversies at the World Trade Organization (WTO), for example, particularly among developing country governments whose farmers complain about the flood of cheap imports. The problem persists in large part because the WTO diagnosis has focused on just one of several complex causes: government subsidies, both export and domestic subsidies. This focus has left other potentially more important factors, such as the oligopolistic market power of international grain traders and global overproduction, unaddressed. It is not uncommon for short-term price discrepancies to exist between domestic and export markets. No market is perfect and commodity markets are rife with market failures and imperfections. Dumping is different. The numbers presented in this report are not recording short-term price discrepancies. Rather, they describe a systematic problem of dumped U.S. agricultural commodities in world markets, a phenomenon IATP has tracked for over twenty years. Dumping destabilizes markets. Dumping is unpredictable. Dumping has destroyed agriculture and related industries in developing countries—one of the best documented recent examples is Haiti’s domestic rice sector, which was buried 4 INSTITUTE FOR AGRICULTURE AND TRADE POLICY in imported rice.3 Some governments, with the encouragement of agricultural economists, have been inclined to overlook dumping because it provides cheap food imports for consumers; they reason that countries can invest their domestic resources in other sectors if they have a cheap food supply. This strategy, however, imposes significant costs on both exporters and importers. It undermines domestic agricultural production in importing countries, which is an important source of poverty-reducing growth. Dumping destroys rural livelihoods and diminishes opportunities to build local infrastructure through local trade. Relying on dumped agricultural production makes low income countries that import the majority of their food vulnerable to price spikes. When prices on international markets rise sharply, poor and vulnerable countries can find themselves without a reliable supplier, as Liberia learned the hard way in the 2007- 2008 food price crisis. When the government was unable to pay higher prices for an already contracted shipment of wheat, the trading company broke the contract, returned the money and left Liberia without the wheat the government was relying on to protect access to food in the country. The persistence of over-production and dumping leaves farmers in the U.S. unable to make a living from the market and reliant on both government transfers and off-farm income to keep the household financially viable. [...]

Dumping can be devastating for farmers in importing countries, especially in low-income countries with little power to defend their markets. It is also unfair to producers in other exporting countries. The underlying issues of dumping include failed agricultural policies in the U.S. that actively encourage overproduction and fail to limit market concentration, as well as the failure of WTO rules to protect its members from the effects of dumping and other U.S. policy failures. While many in the U.S. would agree on the need for a better Farm Bill that ensures consumer get healthier food produced more sustainably, there is not yet sufficient consensus around programs to pay farmers fair prices for their production or to rein in oligopolistic markets. In any case, those measures will only succeed if there is also renewed attention to programs to manage supplies to address climate catastrophes and other supply and price shocks rather than simply seeking to export as much as possible for as long as possible. The return to dumping of U.S. commodities by agribusiness at a time when the U.S. government is challenging other countries’ agricultural programs (as the U.S. has challenged China at the WTO) is hypocritical and clouds the possibility for a successful outcome to debate at the WTO on necessary reforms. IATP’s findings underline the need for a new approach to global trade rules—an approach that respects the obligation of governments to protect food security at home, that respects the complex relationship of food systems to economic development and that respects the importance of accountability in domestic politics in rich and poor countries alike. It is time for strong, clear rules that value more equitable returns to food production and distribution within the supply chain, as well as stable and predictable food prices.